10 Small Cap Stocks that offer Significant Growth Potential

About two years back, I had recommended some decent midcap stocks most of which appreciated big time even before the current bull run started. I have been, since, trying to dig out some value picks in the mid cap segment but unfortunately, most of them ran up big time – much beyond their fair valuations. Let me concentrate on some pure small cap stocks this time with their underlying businesses holding very good growth potential and stock appreciation for the future.

Important: You may note that many of the stocks listed below, while still offering value, have run up a bit as well. The markets are at near all-time-highs and hence some of these stocks can go down sharply at some point. Hence it would be ideal to buy them in the ranges mentioned or take a staggered approach. Further, never put a lot of money into small caps stocks – not more than 10%-15% of your overall equity portfolio

Small Cap Stock Picks

(Company Name, Price on 18/01/2015, Buy Price Range)

1. Chaman Lal Setia Exports (80, 50-60)

2. Gujarat Foils (70, 48-55)

3. Goodricke Group (152, CMP and at dips)

4. Goodyear India (624, 450-480)

5. Hinduja Global Solutions (629, CMP and at dips)

6. JVL Agro Industries (20, 15-18)

7. Jyoti Structures (39, CMP)

8. Noida Toll Bridge Company (35, 24-28)

9. Nucleus Software Exports (199, At dips below 160)

10. Stylam Industries (83, At dips below 60)

Criteria for Selection

Some of the criteria used to pick the small cap stock mentioned here are:

Industry (Excluded Oils, Chemicals, Steel, Textiles etc)

Promoters (How trustworthy are they?)

Age & Stability of the company

Growth Numbers (Top and Bottom line)

Dividend Yield (As applicable)

Debt on Book (Zero or Manageable debt)

As you know, the biggest challenge for most small cap companies is managing the debt as they usually avail high interest loans. A big chunk of their profit flows out as interest repayment and that’s probably the main parameter that would define the growth potential of many of them.

Disclosure: As of writing of this post, I am invested in JVL Agro Industries. I plan to invest in at least 3-4 of the above listed companies as and when their stock quotes reach the ranges mentioned.

Disclaimer: I am not a qualified finance adviser or portfolio manager. Please consult the experts before taking any investment decision in the equity market. You may have to do further research on these stocks on financial portals, websites of these companies as well as mandatory filings by them before taking any positions.

You are right. The last two three quarters of this 40 year old EPC company has been bad. However, the recent QIP and higher margin executions, I hope they get enough cash to operate and turn around soon.

In worst case… i.e. if the turn around doesn’t happen in the next two or three quarters, it might end up like Suzlon. It’s a calculated risk! And almost, all small cap companies, debt burden on book is the main concern.

The problem I see with the company is how dubiously they move their money around other listed businesses like Fedders Lloyd and the debt on the balance sheet. Compared to their peers their operating cashflow shows negative numbers and no fund houses are investing in this company. Hence, I would avoid investing in this. I may buy something like Whirlpool or Hitachi on correction.

Sir,
At current scenerio of the market , what are the small and midcap stocks you suggest to buy. I came to know this site today only. If I have found out in 2013 ,I would
have earned some amount.
Please suggests some stocks for long term investments so that I can earn small amount.
Thanking You
Piyush Modi

I haven’t found anything new than what’s listed (long term) in the comment section. I have recently bought ‘Ballarpur Industries’ as a risky-reward bet. They are selling off their loss making Malaysian arm and hence should turn positive, I believe. But please do your research.

Can you pl suggest the name of a small cap, mfg co with flavor of FMCG,DE 0.30%,ROE 39% and ROCE 49% as on 31.3.2016,Dividend pay out ratio 15%,started giving div wef 2014,Av ROE 25% for last 5 years…thanks and regards

Rahul, I don’t see any reasonably fairly valued Small Caps at the moment. All good ones have run up like crazy. Will post, if I spot any. It’s a continuous learning for me as well, so there’s no real formula that I use other than seeing the growth numbers and relatively low valuations vs potential. I use sites like screener.in to check these numbers.